CIT exits home lending with $1.8 billion disposal

To take $2.5 billion pretax loss on home lending in second quarter

By

SimonKennedy

LONDON (MarketWatch) -- Shares of CIT Group Inc. jumped about 15% Tuesday, rallying after the commercial finance company said that it's agreed deals to sell its home lending business and manufactured housing portfolio for a total of $1.8 billion, marking its exit from all home lending operations.

The New York-based company
CIT, -1.21%
has had to secure new financing and sell assets to strengthen its balance sheet after facing pressure over its liquidity position and mortgage exposure.

CIT's shares rose 14.7%, to $7.81, in early trading. They closed down 14.9% on Monday.

CIT said it will sell the home lending business -- consisting of $9.3 billion in assets and related servicing operations -- to Lone Star Funds for $1.5 billion in cash and the assumption of $4.4 billion of outstanding debt.

Separately, it's agreed to sell its $470 million manufactured housing portfolio to Vanderbilt Mortgage & Finance Inc. for about $300 million. Combined, the two deals will generate net cash proceeds of $1.8 billion.

CIT said it expects to report a $2.5 billion pretax loss for its home lending segment in the second quarter -- $2.2 billion from the sale of assets and $350 million from operations during the period.

The sales should be completed in July, while the transfer of the servicing platform will be completed by the first quarter of 2009.

"These sales complete our exit from all home lending businesses, removing the uncertainty surrounding this asset class, and advances our strategic transformation into a company focused entirely on commercial finance," said Jeffrey Peek, chairman and CEO.

The group has taken several steps to strengthen its balance sheet since the start of April, including raising $1.6 billion in new capital, selling over $2 billion in assets and securing a $3 billion long-term financing facility from Goldman Sachs. See archived story.

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